Natural Care Corp., a distributor of natural cosmetics, is ready to begin its th

Question

Natural Care Corp., a distributor of natural cosmetics, is ready to begin its third quarter, in which peak sales occur. The company has requested a $70,000, 90-day loan from its bank to help meet cash requirements during the quarter. Because Natural Care has experienced difficulty in paying off its loans in the past, the bank's loan officer has asked the company to prepare a cash budget for the quarter. In response to this request, the following data have been assembled a. On July 1, the beginning of the third quarter, the company will have a cash balance of $34,000 b. Actual sales for the last two months and budgeted sales for the third quarter follow (all sales are orn account): May (actual) June (actual) July (budgeted) August (budgeted) September (budgeted) $ 330,000 290,000 340,000 440,000 S 437,000 Past experience shows that 25% of a month's sales are collected in the month of sale, 70% in the month following sale, and 2% in the second month following sale. The remainder is uncollectible c. Budgeted merchandise purchases and budgeted expenses for the third quarter are given below: August September Merchandise purchases Salaries and wage Advertising Rent payments Depreciation July $204,000 $220,000 $262,200 $ 58,000 58,000 $ 53,000 $ 68,000 78,000 $ 79,000 $ 29,000 29,000$ 29,000 $ 39,000 39,000 $ 39,000 Merchandise purchases are paid in full during the month following purchase. Accounts payable for merchandise purchases on June 30, which will be paid during July, total $174,000 d. Equipment costing $20,000 will be purchased for cash during July e. In preparing the cash budget, assume that the $70,000 loan will be made in July and repaid in September. Interest on the loan will total $2,800 Required 1. Prepare a schedule of expected cash collections for July, August, and September and for the quarter in total

Explanation / Answer

Schedule of Expected Cash Collections Collections July August September Quarter From Account receivable: May Sales 6,600 6,600 June Sales 203,000 5,800 208,800 From Budgeted Sales: July Sales 85,000 238,000 6,800 329,800 August Sales 110,000 308,000 418,000 September Sales 109,250 109,250 Total Cash Collections $294,600 $353,800 $424,050 $1,072,450 Natural Care Corp., Cash Budget July August September Quarter Cash Balance, beginning 34,000 49,600 34,400 34,000 Add Receipts: Collections from customers 294,600 353,800 424,050 1,072,450 Total Cash Available 328,600 403,400 458,450 1,106,450 Less Disbursements: Merchandise Purchases 174,000 204,000 220,000 598,000 Salaries and wages 58,000 58,000 53,000 169,000 Advertising 68,000 78,000 79,000 225,000 Rent Payments 29,000 29,000 29,000 87,000 Equipment Purchases 20,000 0 0 20,000 Total Dibursements 349,000 369,000 381,000 1,099,000 Excess (deficiency) of receipts over disbursements (20,400) 34,400 77,450 7,450 Financing: Borrowings 70,000 0 0 70,000 Repayments 0 0 (70,000) (70,000) Interest 0 0 (2,800) (2,800) Total Financing 70,000 0 (72,800) (2,800) Cash Balance, ending $49,600 $34,400 $4,650 $4,650

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